Benchmark crude for June delivery was up 60 cents to $70.68 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The June contract dropped $1.53, or 2.1 percent, to $70.08, a three-month low.

Crude has plummeted from $87.15 a barrel on May 3 on investor concern that deep government spending cuts and spiraling higher debt obligations will choke off economic growth and oil demand.

A $1 trillion bailout package unveiled last week by the European Union and International Monetary Fund has failed to assuage investor concern, and the euro dropped to a four-year low Monday.

"Sentiment in the market has been so bearish that you can't rule out a further fall," said David Moore, commodity strategist at Commonwealth Bank of Australia. "The markets are spooked by developments in Europe."

A surging U.S. dollar against the euro has helped drag down oil prices as crude has become more expensive to investors not holding dollars.

The euro fell to $1.2340 on Tuesday from $1.2392 on Monday while the dollar slid to 92.46 yen from 92.61 yen.

Global crude demand has rebounded this year from last year's recession, led by consumption in emerging economies such as China and India. Some analysts expect demand in the U.S. to pick up in the second half as the economic recovery takes hold.

"In time we'll see U.S. oil demand, which has disappointed so far, start to lift while China's demand has remained very strong," Moore said.

Investors will be eyeing the latest U.S. crude supply data from the American Petroleum Institute on Tuesday and the Energy Department's Energy Information Administration on Wednesday for signs demand may be improving.

Analysts expect inventories rose 950,000 barrels last week, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude stocks have grown 14 of the last 15 weeks and supplies at the key Cushing, Oklahoma storage terminal are at a record high.

"More traders will be looking at this week's fundamental reports for guidance than has been the case for months because the long-time trump-suits of equities and currencies have so clearly lost their ability to push oil prices higher," Cameron Hanover said in a report.

In other Nymex trading in June contracts, heating oil rose 1.80 cents to $2.0032 a gallon, and gasoline gained 2.4 cents to $2.0671 a gallon. Natural gas was up 2.7 cents at $4.425 per 1,000 cubic feet.

In London, Brent crude July contact was up 70 cents to $75.80 on the ICE futures exchange.